The market hasn't been kind to Dell Inc. of late, with its stock down almost 26% over the last two months, but UBS analyst Maynard Um believes that the recent sell-off has created an opportunity for the investors interested in the world's No. 3 PC company.
On Thursday, Um raised his rating on Dell's stock to buy from neutral, saying he continues to believe Dell will benefit from an increase in corporate PC spending that should start in the second half of this year and continue into 2011. Um also said that Dell is less likely to suffer sales declines from softness in the consumer PC market than other computer makers.
Um's upgrade comes a week after Dell (DELL 12.01, -0.05, -0.42%) met with financial analysts to say the company is focused on improving its earnings and diversifying its business operations. Um is the only analyst to raise his rating on Dell's stock over the last few months.
Since Dell's analyst meeting, the company's shares have fallen almost 15%, which Um said has created a "compelling opportunity" for the company's stock.
Um said "market growth dynamics", such as strong demand from Dell's corporate customer base, remains strong and should help Dell going into next year.
"Concern over PC industry softness [is] being driven more by the consumer rather than the enterprise," Um said, in a research note. "Enterprise upgrades are becoming more of a necessity."
Um said Dell, with only 22% of its business coming from the consumer market, and just 20% from Europe, "should be better positioned and buffered against any potential consumer weakness."
Despite Um's upgrade, investors didn't jump on the Dell bandwagon Thursday. The company's stock remained near its breakeven point of $12.06 a share as the overall tech sector slumped along with the broader market.
Even though Um was mostly upbeat about Dell's potential, he still remained a bit conservative about the company. Um cut his price target on Dell's stock to $15.50 a share from $17.50, and also lowered his 2011 fiscal-year forecast on Dell to a profit of $1.24 a share on $62.7 billion in revenue from an earlier forecast of $1.28 a share and sales of $63.1 billion.
Um said he lowered his forecasts on Dell to account for possible share loss in the PC marker and limited gross-margin growth.
Thursday, July 1, 2010
Global Manufacturing Shows Weakening From China to Europe, U.S. -
Manufacturing growth from China to the euro region and the U.S. slowed in June, suggesting the global export-led recovery is losing strength.
In China, manufacturing growth slowed more than economists forecast, and a gauge of factory output in the 16-member euro region weakened for a second month, two surveys showed. The U.S. Institute for Supply Management’s manufacturing index fell more than economists forecast to 56.2 from 59.7 in May.
Asian, U.S. and European stocks fell on concern that a Chinese economic slowdown combined with deepening budget cuts from Spain to the U.K. may undermine the global recovery. While the Organization for Economic Cooperation and Development on May 26 raised its global growth forecast for this year, it said that a “boom-bust scenario cannot be ruled out” in some countries.
“We expect data to soften from here,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. “It’s going to raise some question marks about the outlook, about a double dip. It’s an environment with significant downside risks.”
The MSCI Asia Pacific Index dropped 1 percent today. The Euro STOXX 50 Index was down 1.4 percent at 3:01 p.m. in London. The Standard & Poor’s 500 Index has shed 4.2 percent over the past month, bringing its year-to-date decline to 8.1 percent.
The economy of the OECD’s 30 members will grow 2.7 percent this year instead of a previously projected 1.9 percent, the Paris-based group said on May 26. China may expand more than 11 percent this year compared with growth of 3.2 percent in the U.S. and 3 percent in Japan, according to the OECD. The euro- region economy may expand 1.2 percent, it said.
G-20 Statement
Limited demand in advanced economies has left the world reliant on emerging markets, led by China, to drive a recovery that Group of 20 leaders this week described as “uneven and fragile.” Signs of a slowdown as the Chinese government clamps down on property speculation and the effects of its stimulus package fade have unsettled investors.
Baosteel Group Corp., China’s second-biggest steelmaker, this week scaled back its growth plans, cutting its target for capacity in 2012 by 38 percent and forecasting a “bumpy, unpredictable and long” global recovery.
China’s economic growth will slow over the second half of this year, which is welcome news “given the slight uptick in inflation recently,” Stephen Roach, Morgan Stanley’s Asia chairman, said in Beijing yesterday. A pace of 8 percent or 9 percent would be “much more sustainable than the overheated growth rate in the first quarter,” he said.
ISM Index
In the U.S., the Tempe, Arizona-based ISM’s gauge dropped beyond the median forecast of 59 in a Bloomberg News survey of 81 economists. More Americans unexpectedly applied for jobless benefits last week, Labor Department figures showed today in Washington.
An index of U.K. manufacturing also declined last month. The gauge by Markit Economics dropped to 57.5 from a 15-year high of 58, signaling slower expansion.
Japan’s Tankan index of manufacturing sentiment climbed more than economists forecast. Bank of Japan board member Yoshihisa Morimoto said in Tokyo today that the economy has yet to achieve a “full-fledged” recovery and there are still “many risk factors” at home and abroad.
German Investors
In the euro region, a recovery is also showing signs of weakening. German investor confidence plunged in June and euro- region unemployment rose to 10.1 percent in April, the highest in almost 12 years. In France, consumer confidence weakened for a fifth straight month in June.
“Europe has shown signs of life,” Carl-Peter Forster, chief executive officer at Tata Motors Ltd., India’s largest truckmaker and owner of Jaguar, told Bloomberg Television in an interview yesterday. “The recovery is somewhat brittle.”
With households holding back spending and governments cutting budget deficits, European companies have been reliant on exports to boost earnings. The euro has shed 14 percent against the dollar this year, making goods more competitive abroad.
Siemens AG, Europe’s largest engineering company, on June 29 predicted “continued strong profitability” in its third quarter on reviving demand. Pirelli & C. SpA CEO Francesco Gori said on June 24 that the euro’s weakness against the dollar had a “moderately positive” impact on the Italian tiremaker’s second-quarter revenue.
An index of euro-area services, which will be released on July 5, probably declined to 55.4 in June from 56.2 in the previous month. A composite index of manufacturing and services probably fell to 56 from 56.4.
In China, manufacturing growth slowed more than economists forecast, and a gauge of factory output in the 16-member euro region weakened for a second month, two surveys showed. The U.S. Institute for Supply Management’s manufacturing index fell more than economists forecast to 56.2 from 59.7 in May.
Asian, U.S. and European stocks fell on concern that a Chinese economic slowdown combined with deepening budget cuts from Spain to the U.K. may undermine the global recovery. While the Organization for Economic Cooperation and Development on May 26 raised its global growth forecast for this year, it said that a “boom-bust scenario cannot be ruled out” in some countries.
“We expect data to soften from here,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. “It’s going to raise some question marks about the outlook, about a double dip. It’s an environment with significant downside risks.”
The MSCI Asia Pacific Index dropped 1 percent today. The Euro STOXX 50 Index was down 1.4 percent at 3:01 p.m. in London. The Standard & Poor’s 500 Index has shed 4.2 percent over the past month, bringing its year-to-date decline to 8.1 percent.
The economy of the OECD’s 30 members will grow 2.7 percent this year instead of a previously projected 1.9 percent, the Paris-based group said on May 26. China may expand more than 11 percent this year compared with growth of 3.2 percent in the U.S. and 3 percent in Japan, according to the OECD. The euro- region economy may expand 1.2 percent, it said.
G-20 Statement
Limited demand in advanced economies has left the world reliant on emerging markets, led by China, to drive a recovery that Group of 20 leaders this week described as “uneven and fragile.” Signs of a slowdown as the Chinese government clamps down on property speculation and the effects of its stimulus package fade have unsettled investors.
Baosteel Group Corp., China’s second-biggest steelmaker, this week scaled back its growth plans, cutting its target for capacity in 2012 by 38 percent and forecasting a “bumpy, unpredictable and long” global recovery.
China’s economic growth will slow over the second half of this year, which is welcome news “given the slight uptick in inflation recently,” Stephen Roach, Morgan Stanley’s Asia chairman, said in Beijing yesterday. A pace of 8 percent or 9 percent would be “much more sustainable than the overheated growth rate in the first quarter,” he said.
ISM Index
In the U.S., the Tempe, Arizona-based ISM’s gauge dropped beyond the median forecast of 59 in a Bloomberg News survey of 81 economists. More Americans unexpectedly applied for jobless benefits last week, Labor Department figures showed today in Washington.
An index of U.K. manufacturing also declined last month. The gauge by Markit Economics dropped to 57.5 from a 15-year high of 58, signaling slower expansion.
Japan’s Tankan index of manufacturing sentiment climbed more than economists forecast. Bank of Japan board member Yoshihisa Morimoto said in Tokyo today that the economy has yet to achieve a “full-fledged” recovery and there are still “many risk factors” at home and abroad.
German Investors
In the euro region, a recovery is also showing signs of weakening. German investor confidence plunged in June and euro- region unemployment rose to 10.1 percent in April, the highest in almost 12 years. In France, consumer confidence weakened for a fifth straight month in June.
“Europe has shown signs of life,” Carl-Peter Forster, chief executive officer at Tata Motors Ltd., India’s largest truckmaker and owner of Jaguar, told Bloomberg Television in an interview yesterday. “The recovery is somewhat brittle.”
With households holding back spending and governments cutting budget deficits, European companies have been reliant on exports to boost earnings. The euro has shed 14 percent against the dollar this year, making goods more competitive abroad.
Siemens AG, Europe’s largest engineering company, on June 29 predicted “continued strong profitability” in its third quarter on reviving demand. Pirelli & C. SpA CEO Francesco Gori said on June 24 that the euro’s weakness against the dollar had a “moderately positive” impact on the Italian tiremaker’s second-quarter revenue.
An index of euro-area services, which will be released on July 5, probably declined to 55.4 in June from 56.2 in the previous month. A composite index of manufacturing and services probably fell to 56 from 56.4.
Recovery Worries
Stocks, commodities and the dollar slumped and Treasuries gained as data on manufacturing, jobless claims and home sales fueled concern the economic recovery is faltering.
The Standard & Poor’s 500 Index fell for the fourth straight day, losing 1.4 percent to 1,016.51 at 12:12 p.m., below its lowest close since Sept. 4, 2009. The MSCI World Index of 24 developed nations lost 1.1 percent, approaching a 10-month low. Oil and copper sank at least 3 percent and the 10-year Treasury yield slipped three basis points to 2.91 percent. The euro rallied against the dollar as a Spanish bond sale met targets and pessimism surrounding European banks diminished.
The slide in riskier assets came as reports showed manufacturing growth slowed in China, Europe and the U.S., while American jobless claims unexpectedly rose to 472,000 last week. Pending sales of existing U.S. homes fell at twice the rate economists forecast as the absence of a tax credit hurt demand. The S&P 500 has lost 17 percent from its 2010 high and yesterday completed its first quarterly drop in more than a year.
“It’s a data-dependent market, the leading indicators are turning down and growth is slowing,” said Mike Morcos, senior money manager at Old Second Wealth Management in Aurora, Illinois, which oversees about $1.1 billion. “It now turns out the recovery is weaker than the market thought earlier in the year.”
Financial shares in the S&P 500 slumped 2.2 percent as a group and were the biggest drag on the index among 10 industries after Bank of America Corp. analysts reduced second-quarter earnings estimates for Goldman Sachs Group Inc., Morgan Stanley, JPMorgan Chase & Co. and Citigroup Inc., sending each of their shares down.
Russell 2000 Bear Market
An index of smaller U.S. companies entered a bear market today, with the benchmark Russell 2000 Index extending its slide from a peak in April to more than 20 percent.
Stock returns trailed bonds by the widest margin in nine years during the first six months of 2010 on signs growing government budget deficits may stunt the global economic recovery. A monthly Labor Department report on non-farm payrolls tomorrow is forecast to show the unemployment rate probably rose in June as the U.S. lost jobs for the first time this year.
The extra yield investors demand to hold Treasury 10-year notes over 2-year debt fell to the lowest level since October amid concern the slowing rebound will trigger deflation.
The 10-year note yield stayed below 3 percent for a third day after breaching that level this week for the first time in more than a year. The 2-year yield was little changed at 0.6 percent.
‘Horrific’
“The information is horrific and expectations for how weak the economy is have been underestimated,” said Thomas Tucci, head of U.S. government bond trading at Royal Bank of Canada in New York, one of 18 firms that trade directly with the Federal Reserve. “The market is defensive because of expectations for non-farm payrolls. Construction numbers, housing numbers and other numbers have all been horrific.”
The euro rallied 1.8 percent to $1.2456 and the yen climbed to a seven-month high versus the dollar. The European Central Bank said it will lend banks 111.2 billion euros ($136.5 billion) for six days to help them cope with the expiration of its landmark 12-month loan today. Banks need to repay 442 billion euros in 12-month loans, the biggest amount ever awarded by the ECB. Banks asked for 131.9 billion euros in three-month loans yesterday, less than economists expected.
Spanish Bond Sale
Spain sold 3.5 billion euros ($4.3 billion) of five-year notes, with demand falling to 1.7 times the amount of securities offered, from 2.35 times at the previous auction on May 6. The notes were sold at an average yield of 3.657 percent, compared with 3.532 percent a May 6 auction. The country’s top credit ranking yesterday was put on review for a possible cut by Moody’s Investors Service, which cited “deteriorating” growth prospects, challenges in meeting deficit targets and the risks posed by higher borrowing costs.
“They did fill it at pretty much the maximum of their guidance, and when you consider the backdrop, you’d have to say that’s encouraging,” Sean Maloney, a fixed-income strategist at Nomura International Plc in London, said of Spain’s bond sale.
Europe, Asian Stocks
More than 11 shares declined for every one that advanced in the Europe’s Stoxx 600 index. Deutsche Bank AG, Germany’s biggest bank, and Credit Agricole SA of France lost at least 3.9 percent. BHP Billiton Ltd., the world’s largest mining company, decreased 3.4 percent in London.
The MSCI Asia Pacific Index lost 0.7 percent. Nissan Motor Co., which gets 13 percent of its revenue in Europe, slid 3.2 percent in Tokyo. China’s Shanghai Composite Index decreased 1 percent. Markets in Hong Kong are closed today for a public holiday.
Crude oil fell the most in almost five months on concern growth in the U.S. and China will slow. Crude for August delivery declined $3.40, or 4.5 percent, to $72.23 a barrel in New York. The contract touched $72.05, the lowest level since June 9.
Copper futures for September delivery dropped 3 percent to $2.8625 a pound on the Comex in New York.
Gold futures for delivery in August fell $27.40, or 2.2 percent, to $1,218.50 an ounce in New York as signs that Europe’s financial industry may be in better shape than investors estimated curbed the appeal of the precious metal as a haven. A close at that price would mark the biggest drop for a most-active contract since Feb. 4.
The Standard & Poor’s 500 Index fell for the fourth straight day, losing 1.4 percent to 1,016.51 at 12:12 p.m., below its lowest close since Sept. 4, 2009. The MSCI World Index of 24 developed nations lost 1.1 percent, approaching a 10-month low. Oil and copper sank at least 3 percent and the 10-year Treasury yield slipped three basis points to 2.91 percent. The euro rallied against the dollar as a Spanish bond sale met targets and pessimism surrounding European banks diminished.
The slide in riskier assets came as reports showed manufacturing growth slowed in China, Europe and the U.S., while American jobless claims unexpectedly rose to 472,000 last week. Pending sales of existing U.S. homes fell at twice the rate economists forecast as the absence of a tax credit hurt demand. The S&P 500 has lost 17 percent from its 2010 high and yesterday completed its first quarterly drop in more than a year.
“It’s a data-dependent market, the leading indicators are turning down and growth is slowing,” said Mike Morcos, senior money manager at Old Second Wealth Management in Aurora, Illinois, which oversees about $1.1 billion. “It now turns out the recovery is weaker than the market thought earlier in the year.”
Financial shares in the S&P 500 slumped 2.2 percent as a group and were the biggest drag on the index among 10 industries after Bank of America Corp. analysts reduced second-quarter earnings estimates for Goldman Sachs Group Inc., Morgan Stanley, JPMorgan Chase & Co. and Citigroup Inc., sending each of their shares down.
Russell 2000 Bear Market
An index of smaller U.S. companies entered a bear market today, with the benchmark Russell 2000 Index extending its slide from a peak in April to more than 20 percent.
Stock returns trailed bonds by the widest margin in nine years during the first six months of 2010 on signs growing government budget deficits may stunt the global economic recovery. A monthly Labor Department report on non-farm payrolls tomorrow is forecast to show the unemployment rate probably rose in June as the U.S. lost jobs for the first time this year.
The extra yield investors demand to hold Treasury 10-year notes over 2-year debt fell to the lowest level since October amid concern the slowing rebound will trigger deflation.
The 10-year note yield stayed below 3 percent for a third day after breaching that level this week for the first time in more than a year. The 2-year yield was little changed at 0.6 percent.
‘Horrific’
“The information is horrific and expectations for how weak the economy is have been underestimated,” said Thomas Tucci, head of U.S. government bond trading at Royal Bank of Canada in New York, one of 18 firms that trade directly with the Federal Reserve. “The market is defensive because of expectations for non-farm payrolls. Construction numbers, housing numbers and other numbers have all been horrific.”
The euro rallied 1.8 percent to $1.2456 and the yen climbed to a seven-month high versus the dollar. The European Central Bank said it will lend banks 111.2 billion euros ($136.5 billion) for six days to help them cope with the expiration of its landmark 12-month loan today. Banks need to repay 442 billion euros in 12-month loans, the biggest amount ever awarded by the ECB. Banks asked for 131.9 billion euros in three-month loans yesterday, less than economists expected.
Spanish Bond Sale
Spain sold 3.5 billion euros ($4.3 billion) of five-year notes, with demand falling to 1.7 times the amount of securities offered, from 2.35 times at the previous auction on May 6. The notes were sold at an average yield of 3.657 percent, compared with 3.532 percent a May 6 auction. The country’s top credit ranking yesterday was put on review for a possible cut by Moody’s Investors Service, which cited “deteriorating” growth prospects, challenges in meeting deficit targets and the risks posed by higher borrowing costs.
“They did fill it at pretty much the maximum of their guidance, and when you consider the backdrop, you’d have to say that’s encouraging,” Sean Maloney, a fixed-income strategist at Nomura International Plc in London, said of Spain’s bond sale.
Europe, Asian Stocks
More than 11 shares declined for every one that advanced in the Europe’s Stoxx 600 index. Deutsche Bank AG, Germany’s biggest bank, and Credit Agricole SA of France lost at least 3.9 percent. BHP Billiton Ltd., the world’s largest mining company, decreased 3.4 percent in London.
The MSCI Asia Pacific Index lost 0.7 percent. Nissan Motor Co., which gets 13 percent of its revenue in Europe, slid 3.2 percent in Tokyo. China’s Shanghai Composite Index decreased 1 percent. Markets in Hong Kong are closed today for a public holiday.
Crude oil fell the most in almost five months on concern growth in the U.S. and China will slow. Crude for August delivery declined $3.40, or 4.5 percent, to $72.23 a barrel in New York. The contract touched $72.05, the lowest level since June 9.
Copper futures for September delivery dropped 3 percent to $2.8625 a pound on the Comex in New York.
Gold futures for delivery in August fell $27.40, or 2.2 percent, to $1,218.50 an ounce in New York as signs that Europe’s financial industry may be in better shape than investors estimated curbed the appeal of the precious metal as a haven. A close at that price would mark the biggest drop for a most-active contract since Feb. 4.
Financials fall on jobless data, recovery worries
Slumping large-capitalization financial stocks were led lower by sliding regional banks Thursday amid disappointing U.S. economic data and worries about a sputtering global recovery.
All the top ten decliners were regional banks, with Huntington Bancshares Inc. (HBAN 5.38, -0.16, -2.89%) , KeyCorp (KEY 7.33, -0.37, -4.75%) , and Regions Financial Corp. (RF 6.32, -0.26, -3.95%) down the most, falling about 4% to 5%.
Bank of America Corp. (BAC 13.79, -0.58, -4.04%) was the worst performer of the largest
The Financial Select Sector SPDR exchange-traded fund (XLF 13.48, -0.33, -2.37%) , which tracks the financial stocks in the S&P 500 Index (SPX 1,017, -13.41, -1.30%) , was down about 2%.
Financials started out largely neutral after the U.S. Labor Department on Thursday morning said weekly jobless claims rose 13,000 to 472,000, compared to economist estimates of 455,000 claims this week. This followed weaker-than-expected private sector employment report from ADP released Wednesday. Republicans in the Senate also filibustered a bill Wednesday night that would allow for an extension of unemployment benefits. Read about the jobless report here
Losses in the broader market mounted after the Institute for Supply Management manufacturing index fell more than expected and a report showed pending sales of existing homes tumbled by almost a third from last month, the biggest drop since 2001. Read about the manufacturing report here.
M&T Bank Corp. (MTB 86.14, +1.19, +1.40%) and Goldman Sachs Group Inc. (GS 131.19, -0.08, -0.06%) were among the more moderate decliners, staying roughly flat. Research firm Collins Stewart wrote in a note released Thursday it is "increasingly more constructive" on M&T Bank, repeating its hold rating.
Shares of Citigroup Inc. (C 3.71, -0.05, -1.33%) were down about 1%. The Treasury Department said premarket Thursday it has sold about 1.1 billion more shares of Citi, bringing to total to about 2.6 billion shares sold, or a third of the total 7.7 billion shares the government took in return for assistance.
The House of Representatives approved the financial-legislation bill on 237-192 vote late Wednesday with almost no Republican support. While a Senate vote isn't expected until the week of July 12, the bill is unlikely to change. Read more about the bank bill here.
All the top ten decliners were regional banks, with Huntington Bancshares Inc. (HBAN 5.38, -0.16, -2.89%) , KeyCorp (KEY 7.33, -0.37, -4.75%) , and Regions Financial Corp. (RF 6.32, -0.26, -3.95%) down the most, falling about 4% to 5%.
Bank of America Corp. (BAC 13.79, -0.58, -4.04%) was the worst performer of the largest
The Financial Select Sector SPDR exchange-traded fund (XLF 13.48, -0.33, -2.37%) , which tracks the financial stocks in the S&P 500 Index (SPX 1,017, -13.41, -1.30%) , was down about 2%.
Financials started out largely neutral after the U.S. Labor Department on Thursday morning said weekly jobless claims rose 13,000 to 472,000, compared to economist estimates of 455,000 claims this week. This followed weaker-than-expected private sector employment report from ADP released Wednesday. Republicans in the Senate also filibustered a bill Wednesday night that would allow for an extension of unemployment benefits. Read about the jobless report here
Losses in the broader market mounted after the Institute for Supply Management manufacturing index fell more than expected and a report showed pending sales of existing homes tumbled by almost a third from last month, the biggest drop since 2001. Read about the manufacturing report here.
M&T Bank Corp. (MTB 86.14, +1.19, +1.40%) and Goldman Sachs Group Inc. (GS 131.19, -0.08, -0.06%) were among the more moderate decliners, staying roughly flat. Research firm Collins Stewart wrote in a note released Thursday it is "increasingly more constructive" on M&T Bank, repeating its hold rating.
Shares of Citigroup Inc. (C 3.71, -0.05, -1.33%) were down about 1%. The Treasury Department said premarket Thursday it has sold about 1.1 billion more shares of Citi, bringing to total to about 2.6 billion shares sold, or a third of the total 7.7 billion shares the government took in return for assistance.
The House of Representatives approved the financial-legislation bill on 237-192 vote late Wednesday with almost no Republican support. While a Senate vote isn't expected until the week of July 12, the bill is unlikely to change. Read more about the bank bill here.
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